German inflation rises as expected as energy prices temporarily jump

Flash estimates for Germany's consumer price index (CPI) for December showed a sharp uptick in annual inflation, though it was largely as expected after a plunge in energy prices the year before.

The year-on-year change in the CPI rose to 3.7% last month, from 3.2% in November, slightly under the 3.8% consensus estimate.

Energy prices were 4.1% higher than December 2022, compared to a 4.5% year-on-year drop in November, after the prior year's one-off fiscal subsidy to support households during the energy crisis

As such, the core measure which excludes volatile items like food and energy, actually eased to 3.5% from 3.8% the previous month.

Economist Claus Vistesen from Pantheon Macroeconomics said that the drop in core inflation adds to evidence "that a sustained downtrend in underlying inflation is now underway".

Vistesen said: "Looking ahead, we look for a significant drop in inflation in January, driven by declines in both the core and headline. We think the national headline will drop to around 2% in January,"